Shortly after it emerged that the taxman was proposing a heavy-handed strategy to curb evasion, the Central Board of Direct Taxes on Monday rushed to clarify that effective and stringent action be taken only in "known and big" cases of tax evasion to demonstrate to the large number of compliant tax payers that the rules are just, fair and encourage voluntary compliance.

Terming reports that the CBDT has asked its officers "to go beyond raids and searches" to target tax evaders as factually incorrect, the finance ministry said that it was part of a Discussion Paper circulated during the All India Conference of Chief Commissioners and Director Generals of Income Tax held on May 25-26.

"It may be appreciated that the need of the hour is to provide effective deterrence since the soft action in extreme and big cases of tax evasion affects the behaviour of the compliant tax payers," the ministry said in a statement. But it hastened to add: "effective and stringent action only in known and big cases of tax evasion would go a long way in demonstrating to the large number of compliant tax payers that the tax laws are just and fair and also encourage voluntary tax compliance."

A series of events related to taxation including the imposition of MAT on FIIs, a 14-page ITR Form and the Black Money Bill among others has annoyed taxpayers and investors. The market has tumbled and investor sentiment has been dented due to uncertain and regressive tax policies. The Sensex has touched its lowest level in 2015. ?The finance ministry said the discussion was within the limited context of cases where action under Section 132 of the IT Act 1961 for search and seizure had been undertaken by the Investigation Division of the Department. "These are exceptional cases which are selected for intrusive action after detailed intelligence gathering and due diligence on the basis of credible evidence and are not the norm for routine cases."

It may be noted that only 537 searches were conducted in Financial Year 2014-15 in which admitted undisclosed income was to the tune of Rs 10,288.05 crore.

In such cases where after intensive fact assessment, the Department undertakes search and seizure action as permissible under the law, mere tax collection does not have deterrence value and these need to be taken to their logical conclusion in terms of levy of penalty and launching of prosecution as per the provisions of the Income Tax Act.

On Sunday, PTI reported that CBDT has asked taxmen to instill the fear of "incarceration, loss of liberty and social opprobrium" in tax evaders and prosecute them in large numbers to create a credible deterrence against the menace of black money.

The apex policy making body of the I-T department, in a strategy paper for a recent conference of top tax officials, told tax sleuths that the "need of the hour" is to effectively launch prosecution cases in willful evasion cases at the earliest even "without" waiting for the outcome of any other appellate processes.

"If the endemic and rampant tax evasion is to be contained, then search/survey on a few evaders limited to bringing their concealed income to tax can never be the solution. The remedy must lie in creating credible deterrence so that potential evaders desist from crossing the red line. Deterrence cannot be built merely by levying tax on concealed income, the report said.